The Significance Of Wal-Mart’s Move Into High-End Fashion

Wal-Mart (NYSE:WMT) recently announced that it will be selling Lord & Taylor’s products on its website from early 2018. The interesting part of this partnership is that Lord & Taylor will have a dedicated store on Wal-Mart’s website and app, in addition to its own existing site. ^[1] Wal-Mart is expanding its online business with the addition of upscale shopping options to entice more customers, and this marks another strategic move from Wal-Mart in the e-commerce space – particularly the higher-end fashion space – following the company’s acquisition of Bonobos.For both the companies, this deal is all about increasing traffic.

Given that Wal-Mart’s focus has historically been on low prices for a fairly price-conscious customer base, the association with Bonobos and Lord & Taylor suggests that it is trying to broaden its appeal to shoppers with higher incomes. Meanwhile, Lord & Taylor’s net sales have been falling due to lower store traffic, pressured by e-commerce growth. Although Hudson Bay doesn’t report its individual brand sales, its overall results for the fiscal year 2016 were fairly dismal. Further, Lord & Taylor also sold its New York City flagship to co-working startup WeWork, from which it will rent a smaller portion of floor space and continue to operate its store.

Our $80 price estimate for Wal-Mart’s stock is around 15% below the current market price following a rally in the stock.

Wal-Mart vs. Amazon

With the Lord & Taylor deal, Wal-Mart is on its way to create a complete online shopping destination to compete directly with Amazon (NASDAQ: AMZN). Wal-Mart has already acquired companies with diverse product lines, such as women’s online retailer ModCloth, outdoor gear seller MooseJaw and online shoe site ShoeBuy, which should provide the company with a diverse product portfolio, along with increased digital marketing expertise, eventually helping it face growing competition from the internet retailer. Several of Wal-Mart’s strategic moves are about expanding its position in the apparel business, which remains the largest category for online retail. The U.S. apparel e-commerce segment grew 20% year-over-year in 2016. It should be noted that Walmart has around an 8% share of the total U.S. apparel market, closely followed by Amazon with 7.4%, according to Morgan Stanley. However, Amazon is expected to surpass Wal-Mart and become the largest domestic apparel retailer by 2020, with an estimated market share of 14%.

High-end fashion has historically been a category that is somewhat hard to sell online, especially as expensive brands have been hesitant to let sites like Amazon and Wal-Mart carry their items. However, the market is appealing to retailers due to the generally higher margins associated with it. For the same reason, Wal-Mart recently bought fashion sites Bonobos and ModCloth, while Amazon has made its own-label fashion items and recently launched Prime Wardrobe.

Please refer to our complete analysis for Wal-Mart  

1. Wal-Mart strikes deal with Lord & Taylor, growing in fashion against Amazon, CNBC, Nov 2017 [↩]